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Lord McIntosh of Haringey: My Lords, before the noble Lord leaves that point I should stress that I am anxious to avoid conflict on Third Reading. Therefore, perhaps I may write to the noble Lord on the issue and, if necessary, we can meet to discuss the matter along the lines of the investigation to which I referred in my response.

Lord Goodhart: My Lords, I am most grateful for those comments. I am happy to accept the noble Lord's suggestion. In those circumstances, I am happy to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 [Incorporation document etc.]:

Lord McIntosh of Haringey moved Amendment No. 2:


The noble Lord said: My Lords, Amendment No. 2 is intended to provide the Registrar of Companies with the same powers of approval as exist for the incorporation document in Clause 2(2)(a). We see no reason to treat the statement of compliance differently from the incorporation document in this respect.

The noble Lord, Lord Phillips of Sudbury, suggested in Committee that the original wording here looked a little "futuristic" because it referred to someone,


    "who is to be a member".

He thought that this could perhaps be made more straightforward without undermining the effect of the provision. We agree. I beg to move.

Lord Renton: My Lords, this amendment seems to be very necessary, if I may say so. But, when turning to Clause 5, we see in the first line the words,


    "The provisions of any agreement (express or implied) between the members of a limited liability partnership or between the limited liability partnership and the members as to the mutual rights and duties",

and so on. Am I right in thinking that, bearing in mind the way in which Clause 2 is now drafted, subject to the amendment having been accepted--as we assume that it will be--the idea of an agreement between the members being implied seems to be most unlikely, and, indeed, I would have said impossible, bearing in mind

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what is put forward in Clause 2? Will the noble Lord be so good as to say, bearing in mind Clause 2, how the words "or implied" in Clause 5 can be consistent?

Lord Phillips of Sudbury: My Lords, I had not intended to comment on this amendment, but as the noble Lord, Lord Renton, has raised this matter, perhaps it would be more appropriate for me to raise now the question I was going to raise when Amendment No. 7 to Clause 5 is considered. I should be grateful if the Minister could elaborate also on the provisions that he expects to be contained within the incorporation document. I now look at Clause 2(2)(a) which states that the incorporation document must,


    "be in a form approved by the registrar (or as near to such a form as circumstances allow).

All the other requirements vis-a-vis the incorporation document in Clause 2(2) are extremely straightforward factual matters: name, registered office, the names and addresses of designated members. However, as regards Clause 5, and in particular Amendment No. 7 to Clause 5, questions are raised as to exactly what is potentially to be included in the incorporation document. It seems to me that Clause 5--whether as it now stands, or as it is proposed to be amended--makes no sense unless Clause 2(2)(a) will involve matters of substance vis-a-vis the agreement between members.

Perhaps this is rather a fast ball to bowl at the Minister on this clause and perhaps this is a matter that is better dealt with after this debate, but I thought it appropriate to follow the comments of the noble Lord, Lord Renton, as his point touches on the one I have tried to explain.

Lord McIntosh of Haringey: My Lords, the simple answer to the point raised by the noble Lord, Lord Renton, is that the words he referred to would be removed from the Bill by Amendment No. 7. Amendment No. 7, which stands in my name, seeks to omit Clause 5(1). Therefore, if it were accepted, there would be no reference to an agreement (express or implied). However, as a more general point, I think that the noble Lord will acknowledge that the courts may well find that an agreement between members could be implied from their conduct, even if it were not written down. I hope that the noble Lord will agree that--

Lord Renton: My Lords, I am most grateful to the noble Lord; I should have noticed that. However, the point that he has made disposes of the point that I made.

Lord McIntosh of Haringey: My Lords, I am grateful to the noble Lord. If the noble Lord, Lord Phillips, will allow me, I shall respond to his detailed point about Clause 5 when we reach Amendment No. 7, to which it properly refers.

On Question, amendment agreed to.

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6.15 p.m.

Lord McIntosh of Haringey moved Amendment No. 3:


    Page 2, line 6, leave out from ("anyone") to ("that") in line 7 and insert ("who subscribed his name to the incorporation document,").

The noble Lord said: My Lords, I believe that I have spoken to this amendment with Amendment No. 2. I beg to move.

On Question, amendment agreed to.

Lord Goodhart moved Amendment No. 4:


    After Clause 3, insert the following new clause--

WINDING-UP OF A LIMITED LIABILITY PARTNERSHIP FOR INACTIVITY OR INAPPROPRIATE ACTIVITY

(" . A limited liability partnership may, in accordance with regulations made under section 13, be wound up by the court on the petition of the Secretary of State or a member of the limited liability partnership if--
(a) it has not for a period exceeding 12 months carried on a lawful business with a view to profit, or
(b) its sole or main activity is an activity which is not the carrying-on of a lawful business with a view to profit.").

The noble Lord said: My Lords, this is a probing amendment which follows from the Government's amendment to Clause 2 in Committee which requires those who are subscribers to an incorporation document of an LLP to be people who are associated in carrying on business with a view to profit. Those words reflect the requirement for the formation of a partnership.

However, what happens if that requirement is satisfied at the time of the incorporation of an LLP but ceases to be satisfied afterwards? What happens, for example, if the LLP switches from a lawful business to an unlawful one; or--perhaps this is a little more realistic--what happens if an LLP starts to operate as a not-for-profit organisation? Is there any sanction for its doing so? If there is a sanction, what is it? If there is not a sanction, what is to prevent an LLP doing this and departing from what is clearly the basic intention with which LLPs are allowed to be formed? I beg to move.

Lord Goldsmith: My Lords, I had not intended to speak on this amendment but, having heard the comments of the noble Lord, Lord Goodhart, I simply add the following points. If this amendment is to probe the question of what is to happen in the circumstances that have been mentioned, I very much hope that the answer will not be that it is intended that members of the limited liability partnership will be able themselves to wind up the LLP in that event. The reason I say that is that if the LLP has traded and has incurred liabilities directly to third parties, I should be concerned if a member of the LLP was able to bring it to an end with a potential detriment to third parties in that they would not be able to pursue their remedies against the LLP.

From time to time in the field of company law, a company is wound up and then a third party liability comes to light. The third party may be put to

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considerable difficulty, and sometimes finds it impossible, to have the company restored simply so that the rights against the entity can be pursued. Although I do not for a moment doubt the desirability of probing the issue, I hope that the answer will not be what is stated in the amendment. Therefore, I oppose the amendment.

Lord McIntosh of Haringey: My Lords, I am grateful to the noble Lord, Lord Goodhart, both for moving the amendment--it enables me to clarify the issue--and for the way in which he moved it.

First, he is right to say that the amendment arises out of the alterations made in Committee which changed the definition of the role of an LLP to that of carrying on a lawful business with a view to profit. Secondly, he is right to say that the amendment deals with a change which takes place in the lifetime of an LLP--in other words, after incorporation.

Providing for the wind-up of an LLP in the way proposed by the amendment seems unnecessary. In one case, as my noble friend Lord Goldsmith said, it could be damaging. As to the issue of a lawful business, the combined operation of the provisions of Section 432 of the Companies Act 1985 and Section 124A of the Insolvency Act 1986 mean that the Secretary of State has the power to petition the courts to wind up any company whose affairs are being carried out for an unlawful purpose. It is our intention to apply the relevant provisions of these Acts to limited liability partnerships by way of regulation, and so the Secretary of State will have identical powers in this respect. That means that we do not need to make separate provisions on the face of the Bill.

The proposed amendment may provide members with wider grounds to apply for a winding-up order than those which currently apply to companies. The scope of "lawful business" may possibly include circumstances where there has been misconduct or fraudulent behaviour. At present, as insolvency and company law applies to companies, it would be only the Secretary of State who could apply for a winding up on the ground that it was expedient in the public interest, based on a report furnished under Section 432 of the Companies Act. As my noble friend Lord Goldsmith pointed out, we would have some difficulty if either the intent or the effect of the clause was that a member would have analogous powers to wind up an LLP to those which the Secretary of State has in the Insolvency Act.

As to carrying on with a view to profit, again, we can see little reason for what is proposed. Once again, the intended application to LLPs by regulations of appropriate parts of the Insolvency Act will provide assistance here. It will be possible for an LLP to be wound up by its members through a petition to the court as a result of our intention to apply in regulations Section 124 of the Insolvency Act. We see no good

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reason to provide separately for members' winding up in the set of circumstances described by this amendment.


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